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Introduction to CIS / What is CIS?

CIS was overhauled in 2007, when it became essential for contractors to declare that no-one paid under CIS is an employee.

Then, as now, the philosophy behind CIS was to try to maximise HMRC revenue.

CIS today covers all contractors and labour-only subcontractors who work on ‘construction operations’ within the UK, even if the contractor is based overseas.  In addition to construction, it includes alterations, demolition, repairs, extensions, site preparation, landscaping, painting and decorating, scaffolding erection, and the installation of drainage, water, sanitation, air conditioning, heating and lighting.

Activities outside the CIS remit include architecture, surveying, carpet fitting and canteen and site facilities.

Even companies that are not part of the construction industry but spend £1m+ a year over three years on building projects may need to register for CIS.

Failure to comply with the scheme can result in significant financial penalties.


What does CIS do?

In a nutshell, CIS is a vehicle for tax collection by HMRC.  Firms that are registered (or their agents) are required to deduct a proportion of every payment made to a labour-only subcontractor which is then passed directly to HMRC and treated as an advanced payment towards the construction worker’s tax.


Subcontractors and contractors

Both contractors and subcontractors are required to register for CIS and different rules apply to each.

PAYE employees do not need to register or be registered as they fall outside the scheme.

CIS defines a contractor as a business that uses or provides the services of subcontractors. This means it’s possible for a tradesperson and/or a business to be both a contractor and a subcontractor – for example, if you take on a job and contract it out to others who are self-employed, or when, as a freelance builder, you accept projects as a sub-contractor.



The deduction of tax that must be remitted to HMRC on behalf of each subcontractor is the responsibility of the contractor.  However, the rate of deduction that is applied depends on whether the contractor is eligible to register for gross payment status.  This depends on three tests:  business, turnover and compliance.

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